Reducing title costs easier said than done

Part 2: Consequences of a dysfunctional market

(This is Part 2 of a three-part series. See Part 1 and Part 3.) Last week I pointed out that most borrowers don't shop for title insurance, accepting the recommendations of their Realtor, lender or builder. Competition for business by title agencies is thus directed not at borrowers but at entities with referral power, which often results in kickbacks to referrers rather than lower prices or better service. Kickbacks are illegal unless they have been sanitized by creation of an affiliated business arrangement (ABA) between a referrer and a title agency. ABAs make kickbacks legal but costly. The price of title insurance cannot be reduced by allowing kickbacks to be legalized at high cost, nor can it be reduced by suppressing illegal kickbacks. The way to reduce the cost of title insurance (and also mortgage insurance and credit insurance) is to have the federal government mandate a general policy that any insurance that protects only lenders must be paid for by lenders. On any rea...